Cayman private equity fund tailors deal to buy Deccan 360

BANGALORE: A Cayman Islands-domiciled private equity fund has offered a package deal which could result in it acquiring Deccan 360, the ailing air cargo operator founded by low-cost aviation pioneer G R Gopinath, a person directly involved in the negotiations said.

Redclays Capital has offered to help raise $50 million ( 250 crore) for Gopinath's aviation services company Deccan Charters and buy Deccan 360 for between $2 million and $5 million, the person said, requesting anonymity.

If the transaction is finalised, it will mean that Gopinath and Mukesh Ambani-controlled Reliance Industries, the main shareholders in the moribund freight and logistics company, will have to cede ownership in what will essentially be a fire sale. Reliance, which paid about 110 crore in April 2010 for a 26% stake in Deccan 360, declined to comment for this story, as did Redclays managing director Srini Chakwal. Gopinath, too, did not reply to an email and phone calls.

Deccan 360, which was started in 2009, has been in a limbo for nearly a year. Three Airbus A-310 aircraft leased from Mauritius-based Veling have been returned to the lessors; nearly 600 employees were asked to look for jobs and two ATR aircraft have been grounded as the company has not been accepting new orders.

"If Redclays has to pick up a majority stake in Deccan 360, Gopinath and Reliance have to walk away. Given Reliance's priorities and Deccan 360's performance, there is a very good chance that Mukesh Ambani will be willing to write off his investment," the source said.

Redclays' portfolio in India includes Indian Ambience Vineyards, the Rajpur Hydropower project in Himachal Pradesh and IT consulting firm Sparc Technologies.

The growth of air cargo traffic in India has been slow compared to neigbouring China. According to industry estimates, volumes in India are not expected to cross 2.6 million tonne, a number handled by Hong Kong and Shanghai alone. Operators have also suffered from the lack of critical infrastructure in the country, such as warehouses, a situation that has often nullified the advantages of air cargo shipping. Over the last decade, a number of logistics ventures, including, First Flight Couriers, Quickjet and Gati, have had to shut shop.

Gopinath, who founded low-cost carrier Air Deccan that merged with Kingfisher Airlines, also owns Deccan Charters, the company for which Redclays is raising $50 million. The amount is being raised from a syndicate of wealthy individuals, private placements and family trusts. Germany's Deutsche Bank and Swiss private bank Julius Baer have confirmed that they will invest in Deccan Charters, the source said.

Fundraising will be completed by June, with the money used to expansion and acquisition of new aircraft by the air charter, maintenance and technical services company. The private equity fund is also expected to take a 10% stake in the company once it receives the status of foreign venture capital investor from the Securities and Exchange Board of India.